Investors Await FOMC Announcement
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, March 19th.

The Federal Reserve takes the spotlight today with the rate decision at 2 p.m. Eastern time, possibly keeping the market slightly range-bound for now. That's also when the Fed issues updated economic projections and a new dot plot of the future rate path. Fed Chairman Jerome Powell then takes the podium for his post-meeting press conference, with his tone likely to be monitored closely for hawkish or dovish notes.

The market builds in a 99% chances of another rate pause, according to the CME FedWatch tool. That would be the second pause in a row after the Federal Open Market Committee took rates down by 100 basis points between September and December. The Fed's dot plot of future rate expectations gets a lot of attention, but it's not an estimate, only each FOMC member's best guess as to where rates will end the year in 2025, 2026, and beyond.

The last DOT plot in December showed a large majority of participants projecting two rate cuts by the end of this year. While the median likely won't change, the dispersion of the DOTs likely will, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. Recent Fed speakers have been reluctant to promise near-term rate cuts amid changing tariff policy.

Inflation remains well above the Fed's 2% target, and the Fed's economic and rate projections that arrive with the rate decision will be closely watched. With growth concerns now making the most headlines, Fed Chairman Powell will likely be asked about the balance of risks, given that all of the uncertainty out there could weigh on the labor market. We still expect rate cuts later this year, likely in the second half.

The other main thing to focus on today in Powell's post-meeting press conference is his tone, which some analysts think could veer more dovish thanks to recent benign inflation data and evidence of a slowing economy. The Fed competes for attention Wednesday with the Bank of Japan, which is expected to maintain the target rate after a hike of 25 basis points at the last meeting in January, said Jeffrey Kleintop, chief global investment strategist at Schwab.

On Thursday, the Bank of England is expected to hold after three cuts since August. In data yesterday, February housing starts jumped well above expectations to a seasonally adjusted annual rate of $1.501 million. Consensus from briefing.com had been $1.385 million. Building permits, however, came in near consensus at $1.456 million.

Separately, export prices rose 0.1% monthly in February, while import prices rose 0.4%. The 0.1% increase in export prices was a big drop from January's 1.5% gain, while import prices rose the same amount in both months.

Chances for a May rate cut were 17.3% by late Tuesday, according to the CME FedWatch tool, but chances for at least a 25 basis point cut by June remain near 65.3%. Corporate earnings pick up later this week, and Thursday is a busy day that includes FedEx, Micron, and Nike. These reports could give investors a chance to focus on both consumer and business demand trends during a mostly quiet earnings period.

The start of first quarter earnings season is less than a month away. In trading Tuesday, mega caps dragged the major indexes lower with all of the magnificent seven underwater by midday. The S&P 500 Equal Weight Index, which weighs all members equally rather than by market capitalization, fell less than the S&P 500 Index, which was weighed down by its largest members.

Volume was below average through the middle of the session, raising questions about how much conviction was behind the selling, but declining shares outpaced advancing ones by more than a two-to-one margin, Briefing.com said. Stocks are having trouble hanging on to late last week's gains, especially among the growth trio of tech, communication services, and consumer discretionary, said Lizanne Saunders, chief investment strategist at Schwab.

The Magnificent Seven are having the worst quarter relative to the overall S&P 500 since the fourth quarter of 2022. Technically, $5,560 for the S&P 500 index could be a level to watch on any pullbacks based on certain aspects of the options market. If the S&P 500 falls toward that level, it would be interesting to see if buyers re-enter or if selling accelerates.

Conversely, $5,750 looks like a key upside resistance just above the 200-day moving average. The S&P 500 broke through a keen near-term resistance point Monday at around $5,660 but pulled back sharply to start Tuesday.

The S&P 500 index fell 60.46 points Tuesday or 1.07% to 5,614.66. The Dow Jones Industrial Average fell 260.32 points or 0.62% to 41,581.31. And the Nasdaq Composite fell 304.54 points or 1.71% to 17,504.12.

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